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MTIC (Missing Trader Intra Community) fraud

Costing revenue authorities around EUR 60 billion annually in tax losses, missing trader intra-community (MTIC) fraud is the theft of value-added tax (VAT) from a government by organised crime groups.

The basic MTIC fraud model involves organised, sophisticated activities that seek to exploit differences in how VAT is treated in different EU Member States. The criminals create a structure of linked companies and individuals across these states in order to abuse both national and international trading and revenue-accounting procedures.

Also known as carousel fraud, this crime takes advantage of legislation that allows trading across Member State borders to be VAT free: VAT is applied only to sales within a Member State at the applicable domestic rate. Any VAT charged on sales should be declared and paid to the Member State’s revenue authority. In MTIC fraud, the first company in the domestic chain charges VAT to a customer, but does not pay this to the government, becoming what is known as a “missing trader”.

Links between participants are disguised to make early detection more difficult. The initial entities responsible for the tax damage, the missing traders, may operate for only a few months before disappearing.

Expanding activities

Traditional MTIC fraud schemes involve goods such as precious metals, mobile phones or high-value portable electronic items. The more damaging organised criminal groups have mutated their activities into intangible markets, such as the environmental and energy sectors.

The activity is not a victimless, “white-collar” crime that affects only governments, however. By depriving EU Member States of tax revenue, the criminals are effectively robbing EU citizens of the means for governments to fund the provision of infrastructure such as schools and hospitals as well as vital public services. Fraudsters often use their profits to fund other forms of criminality, such as cigarette smuggling or drug trafficking.

Europol’s role

VAT fraud is one of the nine EMPACT priorities, the European Union’s priority crime areas, under the 2014-2017 EU Policy Cycle.

In association with Eurojust, Europol plays a key role in combatting MTIC fraud by providing expert support to joint investigation teams (JITs) from Member States.

In one operation, JIT VERTIGO – comprising law enforcement and judicial authorities from the Czech Republic, Germany, the Netherlands and Poland – targeted a pan-European MTIC fraud scheme involving electronic goods which resulted in a VAT loss of around EUR 320 million.

In another intervention (November 2015), more than 49 searches and 27 hearings of witnesses and defendants were carried out in Belgium, Czech Republic, Denmark, France, Germany, Italy, Ireland, Luxembourg, the Netherlands, Poland, Romania, Slovakia, Spain, Sweden and the United Kingdom. Europol deployed a mobile office to facilitate real-time information exchange and cross-match analysis of the data collected.

The same JIT targeted the organisers and facilitators of global “alternative banking platforms”, which were used to transfer the proceeds of crime and to launder several hundred millions of euros.

In a further operation, Europol’s Criminal Assets Bureau (which assists EU authorities in tracing the proceeds of crime worldwide) supported Polish and German asset-recovery offices in arresting three individuals suspected of involvement in an intra-community criminal scheme that deprived the Polish authorities of about EUR 20 million in VAT on luxury vehicles.